I was wondering about what I should write this month. I flipped through my small notebook where I collected my ideas. The first page was titled "Horror Financial Stories." These are stories I have heard from friends, extended family members, and others. Hmm....how about that? Since I wrote it back in February 2016, I read through the page. Interesting! I decided to use part of it as my next newsletter blog’s material. I hope you will find the examples informative. Due to time and space, I am going to share two stories.
A couple just bought a home together. Both husband and wife worked and received good income. In fact, the wife just started a new job. The mortgage was based on their two incomes. Not long after they bought the home, the wife was diagnosed with a serious long-term illness. She had to undergo medical treatment and found herself unable to work. While their income decreased dramatically, they still have to pay the same amount of mortgage. What should they do?
Here is what I would do if my family and I were caught in the situation.
· First things first, ask God for help. Nothing is beyond His control. If He allows it to happen, we pray that He will provide the resources to help us navigate through the rough waters.
· Cash flow is severely reduced. We must look at all our expenses and cut down on unnecessary expenses. We will be living on a bare-minimum budget. In our situation, we would probably stop eating out, music lessons, and other luxuries. We would put savings on hold.
· Since our health care system is run by the government, I would probably check first what services are covered. If our income drops drastically, I would check to see if we qualify for premium assistance and/or PharmaCare.
· Next, I would probably check our companies’ benefit. What are covered? Are there any short-term or long-term disability benefit? Are there any home care or medical services that are covered? I would do research to understand our benefit.
· If we have critical illness insurance, we would talk to our insurance agent and find out how to file a claim.
· I would try not to be shy to get help from family, friends, church, or other organizations. If we do not have enough savings, I would probably check out local Food Bank and other non-profit organizations to get help with groceries and any other service they provide so I can make our cash last as long as possible.
The above are immediate actions to be taken. If the illness is not terminal, below are further actions I would consider.
· Find out if there are government benefits I qualify. For example, I may qualify for Disability Tax Credit that I can use to reduce my tax payable. If I do not need it, I can transfer the credit to my spouse.
· Are there any expenses I can cut permanently? For example, is our housing cost too high? Should we downsize? Or, can we rent out part of our home to generate additional income?
To avoid this couple’s difficult situation, I would recommend that when buying a home, couples should use only one person’s income to qualify for the mortgage. The additional income from spouse can be used to pay down the mortgage faster. This also ensures that if one spouse loses income, the mortgage payment will still be bearable.
In some cultures, children live with their parents until they get married. Depending on the culture, even married adult children continue to live with their parents at home. This can bring positive and negative impact on everybody. Let’s start with the positive.
Assuming the adult children are productive, they are contributing in many aspects to the big family. For example, if they are bringing in more income, household expenses become lighter and overall family’s net worth value goes up. If they help-out around the house, chores get done faster, resulting in less time for household work and more personal free time.
The negative impact could be numerous too. If the adult children are not productive, they add a burden to their parents. Instead of feeding one adult child, now the parents are feeding two adult children (child and spouse). Household chores may double – twice as much laundry to be done, food to be cooked, dishes to be washed, and so on. This frustrates many parents. Add to that, sometimes these unproductive adult children produce children of their own (or bring in children from previous marriage). Some parents feel the pressure to make more money so they can support the additional dependant(s). They love their children and grandchildren, but they can’t bear the financial burden for long. Add to all these is social conflict. When family members hang out with each other much, ugliness come out. Taste buds differ (“the food is lousy”), lifestyle standard differs (“why is she wasting so much paper towel?”), etc. Suddenly home is not home anymore. For some parents, the home becomes so uncomfortable that they prefer to work out of town so they don’t have to deal with all issues on daily basis.
What can be done? Kathy Lynn shared some principles in her article published in North Shore News on Wednesday, August 23, 2017, titled “Dropping out of school doesn’t mean a free ride.” Young adults living at home are adults, not children. They are expected to pay room and board, to do their share of work maintaining a home which includes home repairs, laundry, cooking, and others. I agree with her. Parents’ responsibilities are to nurture children and train them to be responsible adults. If I have unproductive adult children living at home, I would set expectations and let them know that they are not staying for free. They need to pay for room and board (unless they are students) and contribute to household work.
What can be done to prevent unproductive adult children? We need to train our younger children on responsibilities around home (chores etc.), simple financial management (give, save, spend), and other issues we think are important. When they are older, we need to let them know what the expectations are – responsibilities around home, financial contribution, and others.
There are many difficult financial stories out there. We can learn from them. When we do make mistakes, we should not dwell on them. There is no need to cry over spilled milk. What we need to do is to get up, find solution and learn to avoid it.
For more help with reducing your money-related stress, contact me at (six zero four) 728-5139 or Effie[at]PrudentMoneyCoach[dot]com. Take advantage of my free first assessment meeting to see if we are a good fit.